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25% Policy Lapse Annually is Increasing the Asset Under Management (AUM)

As per the latest statistics by IRDA, almost 25% of people don’t care to renew their policies every year. This is more common with the insurance products that are of a low premium amount. Insurance giant LIC has earned 5,000 crores because of lapse of premium in the fiscal year (FY) of 2016-17. The same year it sold policies worth Rs. 22,178 crores, which is almost 44% of the market share. In the FY of 2017, out of 1.8 crore policies it sold, one third are expected to expire before the end of 2018.

Attribute to this loss goes to the agents who often sell insurance just to meet their targets. In some other policies, there are greater chances of misspelling as well. Agents intent to promote such products to increase their numbers and commission. In the west, such actions by the insurance advisers are managed by the clause of clawback. In countries like India, Insurance Industry is still at a nascent stage.

Policy lapse majorly contributes to increasing the ratio of AUM in the Industry. It’s even faster than the increase in the AUM in mutual fund Industry. Within a span of a decade, the mutual fund has grown ten times. In the case of the insurance sector, the ratio of increase is even higher. It has been growing at a pace of 11-14% every year. Life industries have witnessed exponential growth from Rs. 5.41 lakhs to Rs. 30 lakhs from 2008 to 2018. Reson for such a huge growth is the asset under management. Prime reason for the growth of AUM in insurance niche is the cessation in the policy.

These lapsed policies are a complete loss to the policyholders. If they don’t care to renew the policy within the year of purchase than they bear lose of the entire premium amount. The average rate of renewal every year is approximately 75-76%. All the lapsed policies contributes in increasing the AUM of the Insurance Industries.

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